Tuesday, July 25, 2017

When Keynes imagined capitalism in 2030

In his famous essay ' Economic possibilities for our grand-children' , Keynes projected himself a century later to imagine the society of the future. In reading it, growth would have supplanted misery. We would live in a society of abundance in which we would work few hours: " It will be time for the humanity to learn how to devote its energy to other ends than economic ones".

This text has been analysed in many ways and at length but its interest in our view resides in the rupture with capitalism that Keynes foresees. It unveils a 'radical'  vision of society than in most Keynes' writings.

Since the end of the 20s, Keynes predicted that the economic activity would be four to eight times higher after a century. Yet, today, in constant terms, the outpur of developed nations is already more than four times higher than it was in 1930. This prediction is remarkable as it was made in  troubled times with the crisis of 1929 and statistics at that time were relatively scarce. To measure the audacity, we should think about the difficulties that a contemporary economist would face today in predicting the level of development in a hundred years!

However, Keynes imagined a society of abundance, which contrasts with one of the basic principles of capitalism, the  scarcity of resources. He focuses on absolute needs (nutrition, housing, etc;) rather than relative needs (the desire to acquire a higher status), but this is rather consistent with his analysis. In an abundant society, these needs do not have any reason to exist since once materiual needs would be fully satisfied, we would be free to be human and to develop an authentic way of living.

What appears incongruent is that a  liberal economist conceives capitalism as a provisional phase of the development of mankind, where liberals think of it as the definitive and unsurmountable form of the economic order. But it is also the antagonism between true human values and the values of capitalism such as the love of money " which will be recognised for what it is, a somewhat disgusting morbidity".. In his vision, capitalism constitutes a sort of dark age during which men are constrained by the scarcity of resources. True values will only prevail when we will get out from an economy centered on work and subsistance. Keynes imagines a society where the 'old Adam' (our deep nature) would still feel the need to work three hours a day.

What makes this text debatable is the questioning of the logic of capitalism, which consists in producing continuingly more goods and serices. For Keynes, capitalism is conceivable only if we can break up with it to build a society of sobriety. Today, we face a similar  economic problem on a much larger scale because the 'productivist' model has reached its limits, due to the limitation of resources and the ecological equilibrium. This again contrasts with Keynes' traditional view on growth and innovation as palliatives to resolve our economic problems.

From an ethical perspective, he opposed the 'Benthamian' tradition which assimilates the good to the useful. Instead, 'once out of the tunnel of economic necessity (...) we shall prefer the good' as opposed to 'avarice' and 'usury'. But his conception of the good is of a different nature and identifies with 'delightful people' and  ' direct enjoyment in things',  which presumably owes to George Edward Moore, a philosophy professor at Cambridge and his 'Principia Ethica".

Interestingly, Keynes concluded that we should "not overestimate the importance of the economic problem, or sacrifice to its supposed necessities other matters of greater and more permanent significance. It should be a matter of specialists - like dentistry. If economists could manage to get themselves though of as humble, competent people on a level with dentists, that would be splendid"  .

His conception of the economy is not about entrepreneurship and innovation and he identified capitalism not with the spirit of enterprise but the desire of money. In his 'General Theory', consumption plays a central role, and saving a secondary role. His rejection of accumulation of money is at the heart of his economic doctrine. His vision of capitalism is not about finance and he imagines without any hesitation 'the euthanasia of rentiers' due to the necessary fall of the rate of interest. For Keynes, the two vices of the economic world are unemployment and inequality of wealth and income. In this sense, his liberal ideas are inseparable from social justice and the search for a better world.


Sunday, November 13, 2016

Keynes and the Universal Basic Income

One of the most famous Keynes' predictions is that people could afford to work less hours   and have more spare time for leisure. His Essay 'Economic Possibilities for our grand-children" was written before the Great Depression and published in 1930. But his point seems to be misinterpreted bymainstream economists. His prediction was that, in the long term, say a hundred years, living standards in 'progressive countries' would be between four and eight times as high. The main arugment is that the society would be more productive with technological progress and resulting increased productivity. Hence  "mankind would  have resolved its economic problem".   

A book published  eight years ago by some of the world's leading economists explores the reasons Keynes was mistaken about a new era of leisure. One argument is Keynes' forgetfulness about distribution.  The trend in recent years, though, has been towards more income inequality, between and within groups. The gap between the top 1% of earners and the rest has widened, but so has the gap   among all other sub-groups of society. The rich  spend more as they get richer, which leads to others wanting to spend more as well. Not all of them can afford to maintain the spending habits of those better-off  , and as a result they borrow. The result, contrary to what Keynes may have imagined, has been a collapse in savings ratios in the US and Britain, and a rise in debt levels and bankruptcies. The other main argument is about working hours. There is no country that conforms to Keynes's ideal of a 15-hour working week. However, France has introduced the 35 hour week that right wing governments wanted to scrap and ask people to work longer. Recently, Sweden has voted for a six hour working day for all workers.  The question is why with sustained technological progress, people still work longhours,  in the US 30% more than in Europe.

Over the last 50 years, living standards in developed western economies have seen rapid growth; by 2030 it is likely that they will have risen at least eightfold if there is a strong recovery from the financial crisis.  But rising living standards have not seen people deciding to satisfy their material needs.  People with low wages have no choice but to work long hours. In his essay in 'Revisiting Keynes" , Richard Freeman notes that more Americans than Europeans say that they want to increase hours worked than to decrease at given wage rates, and that's probably a function of a lower minimum wage and stagnant real incomes for all but the highest earners. Furthermore, widening gap in earnings may create an incentive to work longer hours. 

Keynes's  failure might be  to recognise that distribution matters. The economic problem will not be solved while a quarter of the world lives in abject poverty, nor while a good slice of those living in developed countries are not sharing in economic prosperity or feel they need to spend longer and longer on the workplace.

Keynes' view might be ethnocentric but his argument referred to progressive societies such as France or Sweden. It had to be put in context, bearing in mind the accumulation of capital and the wide variety of goods that technological progress offers. What he had in mind is the ' good society' that Galbraith attempted to lay out twenty years ago.

 In our unequal societies,  a greater degree of income equality would indeed help to improve the welfare of low earners. The new frontier is the introduction of a universal basic income (UBI)whatever the form it takes. Y. Varoufakis made convincingly this point :  "A universal basic income allows for new understandings of liberty and equality that bridge hitherto irreconcilable political blocs, while stabilizing society and reinvigorating the notion of shared prosperity in the face of otherwise destabilizing technological innovation". His proposal is to fund UBI not with taxation but from returns on capital, i.e.. profits. This could be an important step up towards a more equal society.